Varying productivity across firms and countries cannot be fully explained with hard factors like capital, labour, or technology. “It’s a measure of how well you use these inputs, it’s a measure of management,” says US-American researcher Raffaella Sadun. According to Sadun, management accounts for more than 30 per cent of the differences in productivity across countries.
In one of her most prominent studies, Sadun measured the behavior of more than 1,000 CEOs via a survey that collected diary data. The data set included every activity a CEO undertook in a week, as well as whether it was planned ahead of time and who else was involved. Subsequently, a machine learning algorithm estimated behavioral types. Sadun’s data revealed two CEO types: hands-on “managers” and “leaders”.
The first type of behavior – managers – includes relatively more plant visits, interactions with employees in supply chain management, and meetings with clients and suppliers. The other type – leaders – includes relatively more interactions with C-suite executives, personal and virtual communications and planning, and meetings with a wide variety of internal functions and external stakeholders. However, Sadun’s data doesn’t insist on classifying CEOs strictly as one type. Instead, it uses an index that classifies each CEO as a mix of the two types.
Sadun’s research also showed that firms that hire leaders perform better. But just as important is understanding and finding the right fit between the CEO’s leadership style and what the company actually needs. “Some companies need great in-the-weeds managers as CEOs, and others need high-level, vision-setting communicators.”
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